15 Tips to Maximize Savings for Tax Payers in 2014-15

Written on Friday, December 26, 2014
By Bajaj Capital Desk

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According to the department of  income tax (Government of India) Income tax by definition is an annual tax on income. The Indian Income Tax Act (Section 4) provides that in respect of the total income of the previous year of every person, income tax shall be charged for the corresponding assessment year at the rates laid down by the Finance Act for that assessment year. Section 14 of the Income tax Act further provides that for the purpose of charge of income tax and computation of total income all income shall be classified under the following heads of income:

A. Salaries
B. Income from house property
C. Profits and gains of business or profession.
D. Capital gains
E. Income from other sources

The total income from all the above heads of income is calculated in accordance with the provisions of the Act as they stand on the first day of April of any assessment year.

While taxes could be understood as the charges payable to the governments in a civil society in return of the service provided to the society at large. These services include a wide range of services and facilities from education to health care, construction of roads, defense and scientific research etc. to mention just a few. Thus paying income tax is not only a moral obligation but a legal necessity in our country and most of the others as well.

On the other hand this inclination towards not paying taxes or to be realistic trying to minimize the amount of tax one would be liable to pay at the end of financial year is quite understandable. In fact there exist a large number of financial instruments, tool and systems that have been devised around this central idea of minimizing the amount payable as income tax.

Besides this ‘humane’ aspiration of not to part with any percentage, let alone giving away substantial part of one’s hard earned money as Tax  It is important to understand that ‘Tax Saving instruments’ are actually meticulously developed systems that works for the development of economy at large. Therefore to try and maximize your tax savings using legal tools and instruments is not only commonsensical and rightful but also essential for development.

15 Tips to Maximize Savings for Tax Payers in 2014-15

1. The first important item is not to think at all of tax evasion because tax evasion will result into penalty and prosecution. Avoid tax evasion.

2. gifts to your spouse, your daughter- in- law will attract the provisions relating to clubbing of income. If you do choose to give them a big gift, then ensure that their investment are done in such vistas where the income becomes tax free.

3. During F.Y.-2014-15 Think of buying a new residential property in your name as well as in the name of spouse and major children and that too with loan so as to achieve maximum deduction for each of them on account of interest on loan to the extent Rs. 2,00,000 per person and principal payment up to Rs. 1, 50,000 under section 80C.

4. Do not deposit more than Rs. 1,50,000 in your & your minor children’s PPF account account taken together this year or you will lose interest on the amount deposited in excess of Rs. 1,50,000 . Do not open Multiple PPF accounts in the names of family members in different banks.

5. Think of buying property with the funds of your wife and if no funds better give interest bearing loan to your wife and never interest free loan to Wife & Daughter in Law.

6. Don’t make investment in stock market by taking loan bearing interest especially when you are contemplating to sell the shares after keeping it for long time. If done so, whenever the gains on shares become Long -term capital Gain, your interest on the loan amount taken will not be allowed as a deduction.

7. Payment of Life Insurance premium for your parents, for your brother and for your sister will not be tax deductible as per section 80C.

8. Don’t buy or sell any property in any part of India lower than the circle rate because the difference between the price of the circle rate and the transaction price will be added to your income.

9. Gifts from non-relatives of an amount exceeding Rs. 50,000 in a financial year are taxable.

10. Cash loan of an amount exceeding Rs. 20,000 from anyone or else attracts penalty equal to the loan amount.

11. Cash payment of more than Rs. 20,000 to one person will be disallowed by the Tax Department.

12. Don’t destroy tax records for at least six years so that in case of reassessment proceedings you can show the records and papers and avoid all the tensions and worries from the Tax Department.

13. If you purchase a property of more than Rs. 50 Lakhs be ready for tax deduction at source at the rate of 1 percent.

14. Don’t buy gold & gold jewellery in large proportions. Else you may be liable to wealth tax if net taxable wealth exceeds Rs. 30 lakhs.

15. TDS now on maturity of Life Insurance Policies. To avoid TDS on insurance policies do ensure that the payment of Insurance Premium in any of the year does not exceed 10 % of the sum assured.

The author is tax & investment consultant for the last over 45 years at New Delhi

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